Refund Claims for Unconstitutional Levies must be made in Civil Court: CESTAT Rejects Appeal, Citing Unjust Enrichment from ITC [Read Order]
The tribunal further ruled that the appellant had failed to prove it had not been unjustly enriched by availing the tax amount as Input Tax Credit (ITC).
The Chennai Regional Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that refund claims for levies later declared unconstitutional must be pursued in a civil court or writ petition, not under the statutory provisions of the Act. The tribunal further ruled that the appellant had failed to prove it had not been unjustly enriched by availing the tax amount as Input Tax Credit (ITC).
M/s. KPR Mills Limited filed an appeal against the rejection of its refund claim for Rs. 2,86,03,528/-. This amount was paid as service tax on ocean freight under a reverse charge mechanism, a levy which was later declared unconstitutional by the Gujarat High Court. The appellant had paid the tax and subsequently availed it as ITC under the GST regime before filing for the refund.
CESTAT Has No Jurisdiction to Hear Appeals Involving Goods Imported as Baggage as Explicitly Barred by S. 129A(1) of Customs Act [Read Order]
The core issues were whether a refund claim for a tax later declared unconstitutional is governed by the statutory limitations of the Central Excise Act, and whether the appellant had contravened the doctrine of unjust enrichment by availing the tax as ITC.
The appellant's counsel argued that since the levy was unconstitutional, the payment was a 'deposit' and not a 'tax', making the statutory limitation period under Section 11B inapplicable. They relied on Article 265 of the Constitution and Section 72 of the Contract Act, asserting the claim was for a payment made under a mistake of law. They undertook to reverse the ITC if the refund was sanctioned.
The Department's Representative affirmed the order rejecting the claim, arguing that it was barred by limitation as it was not filed within one year as mandated by Section11B of the Central Excise Act, 1944.
The bench, comprising Mr. Vasa Seshagiri Rao (Technical) and Mr. Ajayan T.V. (Judicial), relied heavily on the Supreme Court's landmark decision in Mafatlal Industries Ltd. v. Union of India. The tribunal distinguished between an 'illegal levy' (handled under the Act) and an 'unconstitutional levy' (outside the Act's purview).
It held that since the refund was based on a levy declared unconstitutional, the claim did not fall within the statutory provisions and could not be adjudicated by CESTAT, with the proper remedy being a civil suit or writ petition. Furthermore, the tribunal upheld the finding of unjust enrichment.
Further stated that the burden of proof lies solely with the appellant to demonstrate that the tax burden was not passed on. The tribunal found that the appellant's mere reversal of the ITC after the adjudication was insufficient proof, noting that the credit had been utilized and the appellant failed to provide the meticulous accounting required to establish non-utilization.
Consequently, the tribunal held that the appeal was not maintainable before it and that the appellant had failed to cross the bar of unjust enrichment. Finding no merit in the appeal, CESTAT rejected it.
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